Capitalism Suffers From a Growing Imbalance

What will be the biggest challenge to capitalism in the next two decades—and what should be done about it?

RITA GUNTHER MCGRATH: Capitalist economies require a balance between the interests of capital, the owners of the means of production and the providers of labor, mostly wage labor. This balancing act is carried out by a combination of market forces and institutional rules. My concern is that balance between the parties in modern capitalist economies seems to be eroding.

The regulatory process is seen as opaque, or even worse, tilted to provide benefits only to the politically well-connected or to those who can afford powerful lobbyists. The way bank regulation is perceived would be an example. Property rights are challenged by rampant imitation and the increasing rise of cybercrime, in which hackers, sometimes with government backing, swoop in and steal valuable intellectual property. Increasingly, ordinary people feel that the game is rigged. Developments since the 1970s have had the effect of diminishing the power of labor, with the result that wages have largely been stagnant while profits accruing to corporations and their leaders have soared. Increased income inequality, stagnant household earnings and significant youth unemployment are eroding people’s confidence that they will be rewarded by the system for their efforts.

Does all of this mean capitalism is doomed? I think not–over the years it has proven to be robust and adaptable, but we need to tackle some of its most egregious downsides. I’m very taken, for instance, with one of the initiatives that has come out of the Occupy Wall Street movement. It is called the Rolling Jubilee Program in which the organization buys up long-overdue debt for pennies on the dollar and then simply cancels it. Innovations like these have the potential to restore faith—and perhaps a more appropriate balance.

Rita Gunther McGrath (@rgmcgrath) is an associate professor at Columbia Business School and author ofthe recent book “The End of Competitive Advantage: How to Keep Your Strategy Moving as Fast as Your Business.”